March 28, 2017 Legislative Update
As they head for the first adjournment on April 7, lawmakers are working to bring a number of important issues to a head, including legislation to pay the state’s bills through June 30. House and Senate negotiators moved closer last week to finalizing the spending bill for the remainder of this fiscal year but they are still ironing out differences. They will find most of the $280 million by borrowing against the state’s so-called idle funds account and by delaying payments to KPERS. That latter point seems to be where the hitch lies. The Senate is also working on a budget bill for the following two fiscal years. Funding for public schools is conspicuously absent from that bill because lawmakers assume there is considerably more work to be done on taxes and a new school formula. The impact of all that work can be accounted for in the budget a little bit later in the process.
The Senate Assessment and Taxation Committee is writing a tax reform bill. Recall the House Taxation Committee did most of the heavy lifting on this issue earlier in the session but that package was vetoed by the Governor. The Senate tax bill will presumably contain an increase in income tax rates, if not a new third tax bracket and a repeal of the LLC exemption. Senators are wrestling mightily with the question of whether to make such tax increases effective retroactively to January 1 of this year or to write the bill so the increases kick in next year.
Meanwhile, the House Tax Committee has been hearing about a variety of other tax ideas, including a flat tax of about 5%, a sales tax on various personal services, such as haircuts and towing and an 11-cent per gallon increase in the motor fuels tax.
Last Thursday, the Senate Public Health and Welfare Committee quickly passed out a bill that expands Medicaid. The Bridge to a Healthy Kansas, which has already passed the House, now advances to a debate on the floor of the Senate where supporters are cautiously optimistic it stands a chance of passing. Governor Brownback remains adamantly opposed to expanding Medicaid and taking on what he sees as a massive new financial obligation. Even though the federal government is bound by current law to reimburse states for 90% of the cost of their expanded Medicaid programs, the Governor openly worries that Kansas could get stuck with paying a much bigger portion if the Affordable Care Act changes. Medicaid Expansion passed the House with 85 votes, one more than is needed to override a gubernatorial veto. Whether the same bill can garner the necessary 27 votes in the Senate is not known.
A long-awaited school finance bill was unveiled last week in a House Committee. The bill sets forth a school funding formula which bears a strong resemblance to the formula lawmakers threw out two years ago. The new formula is intended to target the 25% of pupils who, since they are underperforming, were the focus of the supreme court’s recent school finance ruling. It calls for an increase of about $72 million in state aid over what schools are receiving under the current block grant system. That number is considerably lower than many analysts estimate will be necessary for the state to comply the supreme court’s ruling but the chair of the committee was careful to note the bill represents a starting point for discussions.
Under the bill, 107 of the 286 school districts will receive less money than they do now, mainly because of declining enrollment. According to a very preliminary calculation performed by the state department of education, the Seaman school district would receive about $915,000 less under this new formula than it would under the block grant system. Auburn-Washburn and Topeka 501 would both receive well over $2 million more. Those number will change as the bill gets worked. The new formula relies more heavily on local property taxes and, in fact, gives school districts the right to raise property taxes for extracurricular activities and enhancements.
The goal is to work the bill and get it to the full House this week so it can be voted upon and sent to the Senate before the legislature goes on break starting April 7.
A House Committee has sent to the full House a bill which extends STAR Bond financing until 2022. STAR Bonds provide Kansas municipalities the opportunity to issue bonds to finance the development of major commercial, entertainment and tourism areas and use the sales tax revenue generated by the development to pay off the bonds. Without such legislation, STAR Bonds will sunset and could no longer be used as an economic development tool in Kansas.
Bills diminishing or eliminating the jobs incentive programs called HPIP and PEAK have been introduced but have not been scheduled for committee work. No news is good news. There is a sense that, barring a major blow-up over the budget, these bills will probably not advance and the programs should be safe for now. Economic developers across the state, though, will not take anything for granted and will continue to watch closely for signs that this legislation may be moving.
The bill to give cities like Topeka a way to reclaim long-abandoned houses and put them into the hands of non-profits to restore them endured a lively debate on the floor of the Senate last week. It was ultimately sent back to a committee for more work. The same bill received a hearing in the House Local Government committee last week. The Chamber testified in favor of the bill.